A transfer from a richer individual to a poorer one seems to be the most intuitive and straightforward way of reducing income inequality in a society. However, can such a transfer reduce the welfare of the society? We show that a rich-to-poor transfer can induce a response in the individuals'...

By constructing a social welfare function that incorporates the explicit value judgments of Atkinson's measure of inequality, the paper develops implications of optimal income taxation derived using double limit analysis for transfers and inequality. The losses arising from transfers in the...